Transition materials, such as lithium, nickel, and copper, are critical components required for low-carbon technologies like electric vehicles, renewable energy systems, and advanced batteries. Investing in these materials presents a significant opportunity as the world shifts towards more sustainable energy solutions. This investment landscape though is highly dynamic and complex with constantly moving parts driven by evolving political climates, emerging technologies, and global economic shifts. These trends require close monitoring in order to unlock the theme’s full potential.
One element in the transition landscape is the Inflation Reduction Act (IRA). This act provided for significant financial support to boost renewable energy production and various green initiatives in the United States. However, recently there has been a lot of noise around its future under the new administration in the US, which has expressed opposition to several climate-positive initiatives. However, we feel this is overstated. While some parts of the law will likely change, it is not easy to repeal in full, much funding has already been spent and while some areas such as electric vehicles (EV) are likely to be hit, other areas such as solar still make sense in many cases without subsidies. Ultimately it is important to keep in mind that the US is not that significant in the global energy transition, representing around 10% of total EV demand and less than 10% of total copper demand. Furthermore, we continue to see a robust outlook in other areas such as Europe and particularly China, which continues to exceed expectations in this area.
Europe is grappling with high power prices and energy security issues, partly due to the Russia-Ukraine conflict. This situation makes low-cost renewable energy even more important. Meanwhile, China is leading the way in energy transition technologies and driving global demand for critical minerals.
The impact of the IRA on Australian miners was originally seen to be very positive, with access to US subsidies and other co-operation potentially supporting the sector. However subsequent moves in commodity prices have largely undermined this benefit, and as such even if the IRA is rolled back entirely, much of the damage has already been done. What has been supportive though for several Australian miners is an indirect legacy of the IRA which sparked a conversation around strategic security of supply and the importance of domestic supply chains in an increasingly deglobalized world.
Beyond the IRA, other factors are boosting the demand for transition materials. For example, artificial intelligence (AI) and the rapid growth of countries like India are major drivers. AI uses a lot of power and will increase the demand for technologies that need critical minerals. Similarly, India's growth and infrastructure development will drive huge commodity demand in the coming decades.
Nuclear energy is also gaining attention as a reliable source of green power. Governments are becoming more supportive of nuclear energy, especially because it is crucial for providing green baseload power for AI and other technologies.
The US administration’s tariffs on commodities like aluminum and steel are another significant factor that could affect global markets. These tariffs, which are to start in this month, could disrupt supply chains and raise prices in the US, which will potentially hurt international exporters but also creates significant opportunities for domestic producers.
Australia is responding to these global changes with the ‘Future Made in Australia’ policy, which aims to invest AUD$23 billion in renewable energy, advanced manufacturing, and critical minerals over the next decade. This policy will help in ensuring Australia’s supply chains are resilient against disruptions from conflicts, pandemics, or trade wars.
Looking ahead, important events like China’s annual parliamentary meeting and the upcoming Australian election will be crucial. These events could influence global commodity markets and the energy transition, shaping policies and strategies that drive demand for transition materials.
The rise of AI, urbanisation, and renewable energy initiatives are driving demand for transition materials, and regions like Europe and China are leading the charge. As global markets adapt to new policies and economic realities, transition materials are likely become even more vital for the future energy landscape.
